The stock market last week was like Arnold Schwarzenegger in Conan the Barbarian—quiet, strong, and hard to understand.
Both the Dow Jones Industrial Average and Standard & Poor’s 500 index registered their best gains of the summer, with the Dow rising more than 2%, even as trading volume closed the week at its lowest level of the year.
The market’s rise is somewhat odd given that traders spent most of the week waiting for Friday, when Federal Reserve Chair Janet Yellen gave a speech in Jackson Hole, Wyo. Markets were sluggish after her speech, which gave few hints about when the Fed might start raising interest rates.
“Her strategy is probably to deliberately underwhelm,” says Luke Bartholomew, an investment manager with Aberdeen Asset Management. “She’s saying the Fed might raise rates soon, but then again might not. That kind of vagueness suits her because it leaves options open.”
Earlier in the week, Fed minutes indicated that the debate is heating up among policy makers over the timing of a rate hike. The rising hawkish tone appears to have made a mark, as the yield on the two-year Treasury rose 0.08 percentage points to 0.492%, its largest gain since March. Although the market seems to think the Fed will start to hike in June 2015, “everyone seems to be leaving the door open to the possibility it will start in March,” says David Lafferty, the chief market strategist at Natixis Global Asset Management.
The Dow jumped 338 points, or 2%, last week, to 17,001.22, its third consecutive week of gains. The S&P 500 rose 33 points to 1988.40. The Nasdaq Composite index rose 74 points, or 1.6%, to 4538.55. Trading volume on both the NYSE and NASDAQ hit the lowest full-day level this year on Friday.
Traders remain fixated on violence and political tensions throughout the world, which included the beheading last week of an American journalist by an Islamic extremist group and continued strife in Ukraine. But the turmoil didn’t seem to affect trading as much as it has in the past.
“Early in the week, geopolitics seemed to fade and that allowed markets to focus more on the generally better earnings and fundamentals,” Lafferty says.
Better-than-expected housing data also buoyed stocks, as existing- home sales and housing starts rebounded strongly. Home Depot (ticker: HD) surprised investors with strong results for the spring quarter, sending the stock 8.8% higher on the week to lead the Dow. Just three Dow stocks ended the week in the red.
“The move in the market has been very broad-based, which is a good underlying sign of fundamental strength,” Lafferty says.
(Source: Barrons Online)